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Choosing a student loan repayment plan can be daunting. Understanding your options will make it easier to decide which plan is best for you.

What Are the Types of Loans?

There are two general types of student loans. Federal loans, which are funded by the government, and private loans, which are funded by private lenders like banks or credit unions.1 Private loan repayment plans vary by lender, so we’ll focus on federal loans.

Total student loan debt2

  • From Federal loans - 92%
  • From private loans - 8%

Two Repayment Categories3

Federal loan repayment plans fall into two categories: those based on fixed or graduated installments, and those driven by income.

For all plans, remember that:

  • Repayment includes interest, so the longer the repayment plan, the more interest you’ll pay in total.
  • Some loans are forgiven after a certain period of time or number of payments, though you may have to pay income tax on any amount that is forgiven.
  • Not all federal loans are eligible for every repayment plan, so make sure you confirm options for your loan.

Volume of federal loans being repaid using4

  • Fixed or graduated installment plans - 55%
  • Income-driven plans - 45%

Fixed or Graduated Installment Repayment Plans

With fixed or graduated installment repayment plans, you typically will repay your loan in full within a specified time, with loan forgiveness not being an option. If you are comfortable with higher monthly payments, the Standard Plan is usually your best choice for lowest total payment over the life of the loan.

Standard Plan

  • Repay loan in full with fixed installments
  • Repayment period is 10 years (or up to 30 for consolidated loans)
  • If you don’t chose another plan, this is your default plan
  • You’ll usually pay less over time than under other plans

Graduated Plan

  • Repay loan in full with graduated installments
  • Installment amounts start lower and increase every few years
  • Repayment period is 10 years (or up to 30 for consolidated loans)
  • You’ll pay more over time than under the 10-year Standard Plan

Extended Plan

  • Repay loan in full with fixed or graduated monthly payments
  • Make lower monthly payments over a longer period of time, meaning you’ll pay more over time than with the Standard or Graduated Plans
  • Ensures your loan will be paid off within 25 years

Income-Driven Repayment Plans5

Income-driven plans set your monthly payments – recalculated each year – at an affordable amount based on your income and family size, paid over a longer period of time. In general, these plans feature lower monthly payments, higher total interest and loan forgiveness.

Revised Pay as You Earn Repayment Plan (REPAYE)

  • Generally pay 10% of your discretionary income every month
  • Payments could be more than with the Standard Plan
  • Repayment period is 20 years (25 for graduate school loans), after which the remaining balance is forgiven
  • You’ll usually pay more over time than under the 10-year Standard Plan

Pay as You Earn Repayment Plan (PAYE)

  • Generally pay 10% of your discretionary income every month
  • Payments will never be more than with the Standard Plan
  • Repayment period is 20 years, after which the remaining balance is forgiven
  • You’ll usually pay more over time than under the 10-year Standard Plan

Income-Based Repayment Plan (IBR)

  • Generally pay 10% or 15% of your discretionary income every month, depending on when you received your first loan
  • Payments will never be more than with the Standard Plan
  • Repayment period is 20 or 25 years, after which the remaining balance is forgiven
  • You’ll usually pay more over time than under the 10-year Standard Plan

Income-Contingent Repayment Plan (ICR)

  • Generally pay the lesser of two options: 20% of your discretionary income, or what you would pay with a fixed payment over 12 years, adjusted for your income
  • Repayment period is 25 years, after which the remaining balance is forgiven
  • You’ll usually pay more over time than under the 10-year Standard Plan

Income-Sensitive Repayment Plan

  • Generally meant to offer short-term payment relief, these plans are available for low-income borrowers with loans through the Federal Family Education Loan (FFEL) Program6
  • Monthly payments are based on your annual income, and your loan will be paid in full within 15 years, with no loan forgiveness
  • Income-based installments vary across lenders, and after some years, your lender may require you to switch to a different plan
  • You’ll pay more over time than under the 10-year Standard Plan

Your Priorities, Your Plan

Knowing what’s most important to you can help in choosing the right repayment plan.

Repayment Plan Priority

Consider

Lower monthly payments

Income-Driven Plans, Graduated and Extended Plans (at first)

A monthly payment that adjusts according to your career and family growth

Income-Driven Plans

Lower total interest

Standard and Graduated Plans

Lower total payment over life of the loan

Standard Plan

Loan forgiveness

Income-Driven Plans (except Income-Sensitive Repayment Plan)

Shorter total payment period

Standard and Graduated Plans

Want to Learn More?

To learn more about your student loan repayment options, contact your private lender and/or a Federal Student Aid representative. You can also read more about paying off student loans.

This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting or legal advice.

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